Britain's trade deficit with the rest of the world widened more than expected in January in the latest sign the recession is worsening.

The trade deficit grew to £7.745 billion in January from £7.232 billion the month before despite the fall in the value of the pound making UK exports cheaper.

Exports to non-EU countries fell 16%, the Office for National Statistics said, as the global downturn hit demand for UK-made goods.

However, exports to Britain's main trading partner, the EU, climbed 6%.

Alan Clarke at BNP Paribas said: "Overseas demand is collapsing and even though the pound is weaker, it's overseas demand that dominates, and that is likely to be the case for several months to come."

Meanwhile, figures from the National Institute of Economic and Social Research indicate the UK economy contracted 1.8% between December and February.

The institute said the fall in GDP was bigger than the 1.7% drop seen in the three months to the end of January, suggesting the recession is accelerating. The level of economic activity is now 4.3% below its peak of April 2008, it added.

Recruitment experts warn that unemployment in London is set to soar in the coming months.

More firms in the capital plan to reduce staffing levels than increase them for the first time since 2005, according to recruitment specialist Manpower.

The capital's official unemployment rate is 7.2% or almost 300,000 people.